English and Literature
Submitted By momophillipo1234
INTERNATIONAL PERFORMANCE EVALUATION
What I would like to know?
how project has done economically
ECONOMIC RETURN ON FOREIGN INVESTMENT
financial ratios for Invemstment performance:
Germany vs. Mexico: in local currency subsidiary ratios in local currency Inflation Bias in these ratios ADJUST DENOMINATOR FOR INFLATION
MEASURE OF PERFORMANCE
EVA = Economic value added EVA=NOPAT- WACC * invested capital (=D+E)
- NOPAT= net operating profit after taxes (essentially fancy word for CF) substract from that WACC ->
WAS there anything left after substracting it EVA More economic concept: NPV approach BUT: (period by period NPV – disadvantage)
DANGERS FOR EVA:
- Every specific project needed it own WACC * lower WACC – higher EVA – performance realtive to EVA
WACC – same to everything -> tendency to take more risky projects and turn down safe ones
Bogey-rate to WACC added in practice
What are you comparing with?
Corporate minimums: IRR of a Project to be accepted i.e. Comparative approach with performance hard to do because information not available comparison to other units in parent Problem: if not similar risk structures
+availability of data comparison with self over time safe but no information about relative performance
- relative improvement gives you no absolute measure
WHAT DO COMPANIES ACTUALLY DO?
- in practice:
-ROE = 30% (NI/Equity-BV) to get Economic Return of Equity divide this by 3 10%: what markets tell you when stock price is not going up BV of equity compared to Market Value of Equity EQUITY (MV)/ EQUITY(BV)= 3 (for US firms in general)
i.e. Motorola’s 6-sigma
Making a mistake 1 out of 10000 products goal defect rate…...